Who Is Responsible for the Mortgage After A Quit Claim Deed Is Signed?
Before a divorce can be final in California, couples are required by the court to equally divide all community property, such as bank accounts, personal vehicles, furniture, retirement accounts, pension plans, etc., as well as debts, such as mortgages, car loans and credit card debts, Under California law, separate property debts and assets (usually acquired before or after the marriage) are assigned to the spouse responsible for them. Community property assets and debts must be divided equitably between both spouses. That applies to any real estate or personal property, including the family home, acquired during the length of the marriage. During the divorce, the family home can either be sold, or kept by one of the spouses. Usually, the spouse who agrees to keep the family home will be required to financially compensate the other spouse by “buying out” their share of the house, or relinquish other personal property of equal value.
The spouse who wants to keep the family home will also ask the other spouse to sign a Quit Claim Deed. This removes one spouse’s name from the property title and gives full ownership to the spouse keeping the home regardless of a mortgage or lien. If the house is sold later on, only the spouse whose name is on the home title will be entitled to any proceeds, even if the home’s equity accrued after the divorce. It is very important to realize that, while a Quit Claim deed strips a spouse from all rights of ownership, it does not absolve his/her responsibility for the mortgage. As long as that spouse’s name is still on the mortgage papers, he/she may still be responsible for making loan payments. If the other spouse stops making mortgage payments after the divorce, the mortgage company can take legal action against anyone named on the joint mortgage. That is the reason why the judge normally requests the spouse keeping the family home to refinance the mortgage and remove the other spouse’s name from the loan. As an alternative the spouse keeping the property will provide a “hold harmless” clause in the Marital Settlement Agreement assuring the party relinquishing title that they will “protect” the transferor from any liability should the purchaser fall behind on payments.
Additionally, if the mortgage was in arrears before the Quit Claim Deed was signed, both spouses are responsible for the debt. This means that the spouse who relinquishes the family home will have to settle the debt with the mortgage company before the joint mortgage can be refinanced as a single mortgage. As for property taxes, once a spouse signs a Quit Claim Deed and does not own the house anymore, he/she will not be responsible for any new tax debt accrued after the Quit Claim Deed was signed. However, he/she can still be held responsible for any taxes that were due at the time the deed was signed. This is why it is best to pay off any outstanding debt, such as taxes, at the time the Quit Claim Deed is signed.
Dividing community property during a divorce can be complex and overwhelming for many couples. For much less than the cost of litigation, an experienced divorce mediator can help spouses divide community property and debt fairly and equitably, and solve any other issues, such as child custody, child support, and spousal support.